IRS Eases Up On Tax Debtors

A couple of days ago the IRS announced five major changes to its tax debt resolution programs, including lien threshold increases, and new rules for IRS payment plans. These changes are a long time coming and will make a big difference for the thousands of people who owe the IRS.

From SF Gate.com:

Lien threshold raised

For starters, it generally won't file a tax lien against people who owe less than $10,000 in back taxes, twice the current threshold of $5,000. People who have a history of tax avoidance might not qualify. A tax lien gives the IRS a legal claim to a taxpayer's current and future property for the amount of an unpaid tax debt, but it is not filed until the IRS has made repeated attempts to collect from a taxpayer.

"Raising the lien threshold keeps pace with inflation and makes sense for the tax system," Shulman said. "These changes mean tens of thousands of people won't be burdened by liens, and this step will take place without significantly increasing the financial risk to the government."

Tax liens withdrawn

The IRS will also withdraw a lien once full payment of taxes is made if the taxpayer requests it. That means it will disappear from the taxpayer's credit report, according to Rod Griffin, director of education with the credit reporting firm Experian.

Today, after a tax debt is paid, the IRS releases a lien. "At that point we no longer have a claim to any asset that the lien is attached to," Shulman said.

Shulman said that "from our standpoint," a release and a withdrawal are the same thing, but some taxpayers have requested the change because they believe a withdrawal makes it easier to clean up their credit record and get a job.

Continue reading at SF Gate.com...

Payroll Tax Cut to Boost Take-Home Pay for Most Workers

In their latest press release, the IRS released instructions to help employers implement the 2011 cut in payroll taxes, along with new income tax withholding tables that employers will use during 2011. Since the tax deal was so late in being finalized, employers have until January 31, 2011 to get up to speed.

From IRS.gov:

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Notice 1036, released today, contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov in a few days.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

Continue reading at IRS.gov...

Obama: GOP 'Holding Middle Class Tax Relief Hostage'

From ABCNews.com:

In his first press conference since May, President Obama talked about the economy and announced that he is appointing University of Chicago economist Austan Goolsbee to be chair of his Council of Economic Advisers, administration sources tell ABC News.

He took aim at the previous administration and the "partisan minority" that he says are blocking his economic proposals.

"Policies of the previous decades have left our economy weaker and our middle class struggling," the president said.

President Obama acknowledged that progress has been "painfully slow."

"Since I am the president and Democrats have control of the House and the Senate, it's understandable that people are saying, you know, what have you done?" President Obama said. "We've still got a long ways to go."

Proposed Florida Tax Relief Amendment Under Attack

A tax proposal on Florida’s November ballot is causing quite a stir, because opposition feels it is unclear and poorly written, which would confuse voters. If passed, the law would provide an extra property tax break to some homebuyers. However, both labor unions and taxpayer groups are opposing it.

According to the Associated Press, a Tallahassee judge has scheduled a final hearing Thursday in the lawsuit seeking to remove the Amendment from Florida's November ballot.

The proposal, which the Legislature approved last year, would give people who have not owned a home for at least eight years an added — but temporary — homestead exemption on primary residences purchased on or after Jan. 1, 2010.

The Florida AFL-CIO and Jacksonville resident Brian K. Doyle say in their lawsuit that the title and summary are flawed because they don't mention the purchase date.

The plaintiffs also argue the title says the added exemption is for "new homestead owners" and the summary refers to "a first-time homestead" despite the eight-year provision that allows previous homeowners to qualify.

Doyle would not qualify for the tax break and many union members are government employees paid from property taxes that would be cut by the amendment.

In a written response, the state says the title and summary accurately describe the proposal's chief purpose and that the purchase date is the kind of detail not required by law.

IRS Injured Spouse Relief

My law firm’s Tax Relief Blog posted a very informative new article earlier this week discussing IRS Injured Spouse relief. Unfortunately, there are thousands of taxpayers across the country who have run into IRS debt problems because of their spouse or ex-spouse and the IRS has established certain programs – like Injured Spouse Relief – to help these taxpayers. You can find a snippet of the blog entry below, but be sure to read the full article on the Tax Relief Blog.

Dealing with a back tax debt of your own can be stressful enough, but being held responsible for the back tax liability of a spouse – or former spouse – can be even more trying. Fortunately, there may be relief from being held responsible for your spouse’s or ex- spouse’s back tax liability.

The general rule is: when a couple files a joint federal tax return, the IRS will hold both taxpayers responsible for any unpaid tax debts. The IRS will even keep any refund available and apply it to a past due tax liability—even if the couple later begins to file separately but incurred the original debt while filing jointly. Some taxpayers might file separately to avoid a withheld refund, but this can cause the couple to miss out on valuable tax advantages for married taxpayers. This blog entry will explain the basics of the IRS’s Injured Spouse Relief program.

What is an Injured Spouse and what is the Relief the IRS Provides?

For federal tax purposes, an Injured Spouse is someone that is denied a tax overpayment refund or a portion of a refund because the funds were applied to off-set a past-due obligation of a spouse or ex-spouse. This obligation can be a past-due federal tax, state income tax, child or spousal support or even a federal “non-tax” debt, such as a student loan. In this case, the spouse is injured because they do not have a legal obligation to the past-due amount but by having their overpayment applied to the liability, the IRS is in fact holding the person responsible for the debt.

Continue reading at RoniDeutch.com…

Five Things to Look for in a Tax Resolution Company

My law firm’s blog recently posted a new article explaining five essential things to look for in a tax resolution company. You can read a snippet of the post below, or read the full entry at the RoniDeutch.com Tax Relief Blog.

1. Professional and Useful Website

You would be surprised how much you can learn about a business using the Internet. Before hiring a tax resolution company, you should always spend a few minutes reviewing their website. Look for informative testimonials and information about any chambers of commerce, or professional organizations the company is aligned with.

In addition to information about the business on their website, you should also see if they offer information on topics related to tax debt resolution. If the company employs experts knowledgeable about the various IRS tax resolution programs, then the company should have useful information such as informative articles, a glossary of tax related keywords, newsletters and a blog (that is updated regularly) for you to review.

2. Successful Track Record

A quality tax resolution company will be able to provide evidence of a successful track record of resolving delinquent accounts with the IRS. If you cannot find information on a company’s website about recent resolutions that is has achieved for its clients, then you should consider asking a representative of the company for this information. If you do speak with a tax resolution company, you should also inquire as to whether the company has experience in resolving cases similar to yours.

Five Alarming Tactics Used by Dishonest Tax Relief Companies

Yesterday my law firm posted a blog entry (the RoniDeutch.com Tax Relief Blog) describing a handful of tactics used by dishonest tax debt resolution companies. Over the past 19 years, my team and I have heard hundreds, if not thousands, of horror stories about these unethical companies and their practices.

1. Cold Calling Solicitation

Because of high sales demands, some tax debt resolution companies have turned to cold calling in order to solicit new clients. This is alarming because unpaid taxes are not something most people want to freely disclose. Having a stranger leave you an unwelcome message regarding your tax debts can be intrusive and discomforting. These companies may also use half-truths to try and scare you into believing that immediate action is required by you to resolve your tax debt.

2. Guarantees

Some tax debt resolution companies represent that they can obtain a settlement offer with the IRS for significantly less than what a taxpayer may owe to try and convince taxpayers to retain their services. However, don’t be fooled. No one can guarantee that the IRS will accept your settlement offer. Whether the IRS will accept a settlement offer, otherwise known as an Offer in Compromise, or another tax debt resolution depends on each taxpayer’s unique financial situation, tax liability, and tax filing compliance. The IRS has strict guidelines for some types of tax debt resolutions and the IRS will not accept a particular tax debt resolution if a taxpayer’s financial situation does not meet the established guidelines.

3. No Pre-Analysis, No Attorney Review

Many tax debt resolution companies will sign up new clients without knowing anything about their financial situation. My law firm will not agree to sign up anyone without first performing a free and confidential tax analysis. In order to perform the tax analysis, our law firm asks a series of questions to obtain an understanding of a taxpayer’s unique financial situation. The tax analysis is performed by a tax attorney. After reviewing a taxpayer’s financial information, a tax attorney will recommend which particular tax debt resolution would be the most appropriate for the taxpayer. Unfortunately, performing a tax analysis for a taxpayer and providing the taxpayer with tax resolution options prior to enrolling the taxpayer does not appear to be a common practice with many of the tax debt resolution companies.

Continued at RoniDeutch.com…

IRS Testing Fast Track Mediation

Remember the idea of a “kinder, gentler Internal Revenue Service?” You are probably rolling your eyes at the thought, right?

But it seems the IRS is trying to find ways of working with taxpayers, rather than fighting them. The IRS has been testing Fast Track Mediation in eight areas in the country. These mediations are designed to help resolve tax disputes quickly and with less paper flying.

Tax issues for which you may request mediation include:

• Examinations/audits
• Offers in Compromise
• Trust fund recovery penalties
• Collection actions

Taxpayers do not have to file written protests to request fast track mediation. If you disagree with the IRS’s findings or determinations on your tax account, ask for a mediation session. In order to expedite, make sure your tax filings are current, and you have provided necessary documentation to the IRS Compliance office.

On the appointed day and time, the IRS representative and you will meet with the mediator. Who is this mediator? Well, usually an IRS Appeals Officer who has been trained in mediation. This does beg the question, how impartial can mediators be when their paychecks come from one of the parties they are mediating?

The mediator’s job is to facilitate communication, guiding everyone to a mutually beneficial resolution. Like any dealings with the IRS a tax attorney or CPA with a Form 2848 Power of Attorney and Declarations of Representative on file is allowed to represent your interests. And since the mediator and the IRS representative know the laws, it would be a good idea to have someone familiar with taxation law on your side as well.

While mediation can not solve all tax problems, this is an interesting program the IRS is testing, and I’ll be interested to see how useful it is.

GM Pleads for Relief on Taxes

The NY Times discussed GM and their newest financial problems in a recent post. GM is asking for more financial relief, in their taxes. A segment of the article can be read below, but the full post can be found here.

General Motors (GM), which is borrowing $13.4 billion from the federal government to remain solvent, is pressing Congress to waive a tax liability of as much as $7 billion related to the overhaul plan that it is completing this month, people with knowledge of the discussions said on Sunday.

The tax bill, which could be enough to force the company into bankruptcy, would be a consequence of the terms that the Treasury Department required as part of the rescue package approved last month by the Bush administration. In accepting the loans, GM pledged to persuade its creditors to swap a large chunk of the automaker’s debt for equity in the company.

The equity-for-debt exchange is aimed at ensuring GM’s viability in the future, but under corporate tax law, the swap would amount to debt forgiveness and count as income for G.M. The resulting tax bill could take GM’s cash level below the minimum needed for daily operations.

GM is lobbying Congress to reduce or eliminate the tax liability, said people with knowledge of the effort, who spoke on the condition of anonymity because the discussions were private. The Detroit News first revealed the lobbying effort on Friday.

Palin Makes Her First Gaffe

From Huffington Post:

Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend.

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."

Economists and analysts pounced on the misstatement, which came before the government had spent funds bailing the two entities out, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.

"You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say."

Added Andrew Jakabovics, an economic analyst for the progressive think tank, Center for American Progress: "It is somewhat nonsensical because up until yesterday there was sort of no public funding there. Even today they haven't drawn down any of the credit line they have given to Treasury. 'Gotten too big and too expensive' are two separate things. The too big has been a conservative mantra for a while and there is something to be said of that in that they hold about half of the mortgage guarantees that are out there. And in the last year they have been responsible for roughly 80 percent out there. The 'too expensive to tax payers,' I don't know where that comes from."

Even conservative analysts acknowledged that the statement simply did not hold true.

"Heretofore, if the treasury had a balance sheet there would have been a liability but there was never a taxpayer payment before [the bailout]," said Gerald P. O'Driscoll, an economist with the Cato Institute. "[Fannie and Freddie] were not taxpayer funded. They had taxpayer guarantee, which is worth something, especially in the stock market..."

The Palin misstatement comes as Fannie and Freddie are set to be placed under control of the Federal Housing Finance Agency, created by President Bush in late July to help regulate the two housing giants. Both presidential candidates have been critical of Fannie and Freddie but neither is opposed to the government's plans for the companies. The treasury is hoping that the government's role will help stabilize credit markets and incentive more mortgage lending.

"With the takeover they will be taxpayer funded," said O'Driscoll. "As I understand it they get to withdraw funds with permission going forward."

How politically significant a "gaffe" it is remains to be seen. The major concern about Palin's position on the ticket is that she lacks the economic and foreign policy wherewithal to serve as vice president. This certainly doesn't help on that front. At the same time, the remark went almost entirely unnoticed over the weekend and discussions on the developments of the housing market can be difficult to process for even the most attuned voter.

There are varying explanations that could be offered for Palin's defense. As O'Driscoll noted, both Fannie and Freddie "were hybrid institutions because they had private ownership but... an implicit government guarantee which people thought at the end of the day was explicit." Meanwhile, as Baker noted, as of July the two lenders were being offered low market interest rates by the fed again, theoretically, at the taxpayer's expense. But, he added, "I kind of doubt she had any sense of that."

Hurricane Gustav Victims Qualify for IRS Disaster Relief

According to the newest press release form the IRS, they have setup a program to provide relief for victims of Hurricane Gustav. Below is a snippet from the release, but click here to read the full text, and to learn how to qualify for disaster relief.

“The IRS is postponing until Jan. 5, 2009 deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and other time-sensitive acts otherwise due between Sept. 1, 2008 and Jan. 5, 2009. This includes:

Individual estimated tax payments due Sept. 15, 2008.

Corporate extended 1120 tax returns due Sept. 15, 2008.

Individual extended 1040 tax returns due Oct. 15, 2008.

‘As residents of Louisiana return to their homes following Hurricane Gustav, taxes are one thing they won’t need to worry about,’ IRS Commissioner Doug Shulman said. ‘This relief gives them extra time to get their lives in order before having to deal with their tax matters.’

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Sept. 1, 2008 and on or before Sept. 16, 2008 as long as the deposits are made by Sept. 16, 2008.

Taxpayers who reside in or have a business located in the following parishes qualify for the relief announced today:

Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Vernon, West Baton Rouge and West Feliciana.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing or payment due date between Sept. 1, 2008 and Jan. 5, 2009.”

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More Information on Fielder’s Tax Problem

The Milwaukee Online Journal posted this article with slightly more information on the story I posted about yesterday, Milwaukee Brewers First Baseman Owes the IRS $409,149.

Many people in the professional sports industry refuse to comment on financial issues, and this case is no exception. However, the author does bring up a few interesting points. For example, Fielder recently turned down a new contract valued at around $60 million, so it seems likely that he will be able to repay the liability. However, there are no court records to support the idea that he has already settled the liability, meaning it could still be in IRS collections.

IRS Unveils Foreclosures Section of IRS.gov

The IRS’ official website, IRS.gov has unveiled a new section of their website devoted to providing information to families who have had increased tax liabilities due to foreclosures. The IRS is letting families know that although "foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes." However, providing relief after people are already in debt to the IRS doesn’t really solve the problem. The only thing in the IRS’ announcement that really seems to address a solution is when they say "the IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure." Unfortunately this is the best we will probably see any time in the near future as the only way to really fix the problem is for Congress to step in and change the tax code so that it no longer considers foreclosure relief taxable income.

Letter to Congress, U.S. Treasury, and the IRS

Last week, I sent an open letter to Congress, the U.S. Treasury, and the IRS identifying a problem that can be easily fixed and beneficial to taxpayers and the IRS. Here is a press release about the letter and including an actual photocopy.

Specifically, the problem was that the IRS requires a complete financial disclosure from all taxpayers who owe in excess of $25,000.00. The complete financial disclosure includes giving the IRS extremely personal information and private financial information. The disclosure is required even if you arrange to fully pay the amount owed within five (5) years, which is agreeing to a substantial payment. The disclosure also requires substantiation of all financial information claimed. This includes providing copies of all current financial records, such as bank statements, paycheck stubs, proof of payment for monthly expenses (i.e. medical expenses, child care, etc.). As you can imagine, such a system acts as a barrier for many taxpayers to get a fair resolution. In fact, it frightens many from even attempting to address their IRS tax debt.

Congress, the U.S. Treasury, and the IRS can work together to create a more efficient and effective program. Simply raising the bar to when the IRS requires a complete financial disclosure will go a long ways towards creating that program.

IRS Grants Virginia Tech Six Month Extension

Following yesterday’s horrific events, the Internal Revenue Service has granted a six-month filing and payment extension to all taxpayers affected by the shootings at Virginia Tech in Blacksburg, VA. The extension applies to all victims and their families, university students and employees, as well as emergency responders. The relief gives the affected parties until October 15, 2007, to file and make payments associated with their 2006 individual tax returns that were originally due on April 17. There will be no filing and payment penalties for those who qualify as long as the returns are filed and payments are made on or before October 15, 2007. "Taxes are the last thing the Virginia Tech family should be worried about at this time," notes IRS Commissioner Mark W. Everson. "Our hearts go out to the people affected by this tragic event." To claim this relief taxpayers need to call the IRS at 866-562-5227 and identify themselves before they file and or make payment.

Tax Relief For Special Needs Children

According to recent Census data, one in twelve children and teenagers have a physical or mental disability. With special education enrollment costs on the rise, parents are left with the financial burden of paying for special education. Although the Internal Revenue Service does not have any clear cut relief measures for these parents, there are many deductions that the IRS recommends that parents of special needs children take advantage of when preparing their tax return. Intuit has a helpful article on tax relief for special needs children that you can read by clicking here.